This guide, which focuses on how foreign corporations can set up a legal presence in the Philippines, was first published in 2015, when our firm celebrated its 70th anniversary, and this most recent update was prepared in connection with our 78th anniversary celebrations. We hope that this guide, containing the relevant information on the systems of law, the legal forms through which people carry out business, capital requirements, how entities are operated and managed, expansion possibilities, corporate governance, employment law and more, will be instructive to businessmen and lawyers alike and will showcase the Philippines as an attractive venue for business ventures.
About the Firm
SyCip Salazar Hernandez & Gatmaitan (SyCipLaw) was founded in 1945. It is one of the largest law firms in the Philippines. It has offices in Makati City, the country’s business and financial center, as well as Cebu City, Davao City, and the Subic Bay Freeport Zone.
We offer a broad and integrated range of legal services, covering the following fields:
SyCipLaw has specialists in key practice areas such as mergers and acquisitions, energy, power, infrastructure, natural resources, transportation, government contracts, real estate, insurance, international arbitration, mediation, media, business process outsourcing, and technology.
The firm represents clients from almost every industry and enterprise, and the firm’s client portfolio includes local and global business leaders. We also act for governmental agencies, international organizations, and non-profit institutions. SyCipLaw maintains links with established and leading firms based in other jurisdictions, including the United States, and countries in Europe and Asia. We are an active member of various international lawyers’ associations, such as the Employment Law Alliance, the Interlex Group, Multilaw, the Pacific Rim Advisory Council, the World Law Group, and the World Services Group.
Recognition and Awards
Recent professional awards include:
I. Doing Business in the Philippines
The Revised Corporation Code of the Philippines (the “RCC”), which took effect on February 20, 2019, requires any foreign corporation doing business in the Philippines to obtain a license to do business from the Philippine Securities and Exchange Commission (“SEC”).
The term “doing business” is defined broadly under Section 3 (d) of the Foreign Investments Act of 1991, as amended (the“FIA”). It includes:
(a) soliciting orders or service contracts;
(b) opening offices (whether called “liaison” offices or branches);
(c) appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty (180) days or more;
(d) participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; or
(e) any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.
The FIA also enumerates certain acts which are not considered as “doing business:”
(a) investment as a shareholder in a domestic corporation and/or the exercise of rights as such shareholder;
(b) having a nominee director or officer to represent its interest in a domestic corporation;
(c) appointing a representative or distributor domiciled in the Philippines which transacts business in the representative’s or distributor’s own name and account;
(d) the publication of a general advertisement through any print or broadcast media;
(e) maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity in the Philippines;
(f) consignment by a foreign entity of equipment with a local company to be used in the processing of products for export;
(g) collecting information in the Philippines; or
(h) performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis.
A foreign corporation doing business in the Philippines without the required license will not be permitted to maintain or intervene in any judicial or administrative action in the Philippines; however, such foreign corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine law.
This lack of capacity to sue or denial of access to the courts at the time of the cause of action does not apply to cases of enforcement of foreign arbitral awards obtained in its favor pursuant to an arbitration clause in a contract. The Supreme Court has held in the case of Tuna Processing, Inc. v. Philippine Kingford, Inc. (G.R. No. 185582, February 29, 2012) that Republic Act No. 9285, also known as the Alternative Dispute Resolution Act of 2004, does not require that the party seeking the enforcement should have legal capacity to sue.
II. Getting Started—Subsidiary or Branch Office
A subsidiary is a domestic corporation formed in accordance with the laws of the Philippines. It has a juridical personality separate from that of its shareholders.
A subsidiary is subject to Philippine law requirements as to corporate structure.
The RCC provides that any person, partnership, association or corporation, singly or jointly with others but not more than 15 in number, may organize a domestic corporation, provided only that each incorporator must be a subscriber to at least one share of capital stock. Further, the corporation may have any number of directors but in no case more than 15, who, likewise, must own at least one share in the corporation’s capital stock. The RCC removed the Philippine residency requirements for incorporators and directors. The board of directors needs to annually elect the officers of the corporation (i.e., a President, a Treasurer, a Corporate Secretary, and other officers provided for under the subsidiary’s by-laws). The President must be a director and cannot simultaneously act as the Treasurer or the Corporate Secretary. The Treasurer must be a resident while the Corporate Secretary must be a Philippine citizen and resident. A Compliance Officer must also be elected if the corporation is one which is vested with public interest (e.g., corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as “The Securities Regulation Code”, banks, quasi-banks, non-stock savings and loan associations, pawnshops, corporations engaged in money service business, pre-need, trust, and insurance companies, and other financial intermediaries).
The RCC also introduced the concept of a One Person Corporation (“OPC”) where a single stockholder is the sole director as well as the president of the corporation. The single stockholder is only required to appoint a nominee and an alternate nominee who will take their place in the event of death or incapacity. An OPC is less regulated than regular corporations but this corporate vehicle is only available to natural persons, trusts, or estates and cannot be availed of by foreign corporations.
A branch office, on the other hand, being a mere extension of the head office, is not required to have directors or officers separate and distinct from those of the head office, the requirements and qualifications for whom are governed by the laws of the head office’s state of incorporation. A branch office is, however, required to appoint a resident agent upon whom summons and other legal processes may be served in all actions or legal proceedings against the foreign corporation.
Given the above, a branch office provides more flexibility in operations. Generally, a branch office is bound by Philippine laws, rules, and regulations applicable to domestic corporations, except with respect to the creation, formation, organization, and dissolution of corporations, and the relations or duties of stockholders or officers of the corporation to each other or to the corporation. As an extension of the juridical personality of the head office, the liabilities of the branch office are the liabilities of the head office.
Aside from having a branch office, a foreign corporation may also establish presence in the Philippines through representative offices, regional headquarters, or regional operating headquarters. The types of activities of these offices are, however, limited compared to those of a branch office.
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